Investors make the transition from economic numbers to earnings news in the coming week. Luckily, a light schedule of corporate reports and a four-day market will give them a chance to get acclimated before the real earnings onslaught begins the following week. Analysts agree that next week's economic data, which include ISM Services, Consumer Credit and PPI numbers, pales in comparison with the importance of last Friday's nonfarm payroll report, which drove stocks and the 10-year bond yield sharply higher. The U.S. Labor Department said nonfarm payrolls increased 308,000 in March, well above expectations of 122,000 jobs. In addition, payroll growth for both January and February was revised upward. After rallying Friday on the positive jobs news, the Dow moved up 2.5% for the week. The Nasdaq finished the week up 4.1% with the help of Friday's climb of 42.2 points. The 10-year bond sold off quickly on the jobs numbers, with the yield jumping from Thursday's close of 3.88% to a Friday finish at 4.14%. Paul Mendelsohn, market strategist at Windham Financial, said the run-up in the 10-year's yield is "making a lot of people nervous" about higher rates heading into next week. He suggests investors avoid interest rate-sensitive financial and homebuilding stocks in favor of watching names such as Alcoa ( AA), which kicks off earnings season next Tuesday after the market's close. Robert Pavlik, portfolio manager at Oaktree Asset Management, also will be eyeing Alcoa's earnings report, noting that the aluminum producer needs to do better than Thomson First Call's 41-cent-a-share first-quarter estimate to reassure the market that increasing commodity prices are not hampering profits. Pavlik says low oil and steel prices are especially essential to companies with interests in mining. After Alcoa kicks things off, other big names reporting during the holiday-shortened week include Yahoo! ( YHOO), General Electric ( GE) and Genentech ( DNA).
Stephen Biggar, associate director of research at Standard and Poor's, doesn't expect many big misses next week. "Prerelease season came and went without much fanfare, which is usually a sign that the majority of companies should at least meet expectations," he said. Despite his confidence in upcoming earnings, Biggar echoes Mendelsohn's advice, saying he would steer clear of homebuilders and financials with interest rates creeping higher. Biggar says the Fed is on hold until after the election, but S&P is still raising internal forecasts on the 10-year bond yield with the outlook of a stronger economy. For the most part, traders expect the shortened week will provide them with an easy way to leg into earnings season. Paul Nolte, director of investments at Hinsdale Associates, says he is expecting a "slow Thursday, and maybe even Wednesday as well." One bit of housekeeping that might liven up next Thursday's trading is the Dow reshuffling, with Eastman Kodak ( EK), AT&T ( T) and International Paper coming out and Verizon ( VZ), Pfizer ( PFE) and American International Group ( AIG) going into the 30-stock index. But even with the Dow machinations, analysts such as Brian Piskorowski of Wachovia are not expecting much. "The real week is the week after next when we get the lion's share of earnings," he said.